mailingLeitner 11/2023

On 4 October 2023, as part of the tax reform, amendments to tax laws have been announced and shall become effective as from 1 January 2024, unless already applicable in 2023.

Income tax

• The city surtax on all types of income has been abolished.
• The basic personal allowance increases from EUR 530,90 to EUR 560 as well as the allowances for dependent family members and established disabilities, respectively.
• The local self-government units, i.e., the municipalities and cities, shall now determine the tax rates for income from employment and income considered as “other income”. Tax rates can be determined within a new range consisting of a lower rate of 15 % to 23.6 % and a higher rate of 25 % to 34.5 %. If the local self-government units do not decide on the level of the tax rate, the rates of 20 % and 30 % are applied.
• The threshold for applying the higher income tax rate shall be increased from EUR 47,780 to EUR 50,400.
• Due to the abolition of city surtax, tax rates applicable to the taxation of income classified as final income have been increased from 10 % to 12 %, from 20 % to 24 % and from 30 % to 36 %.
• Tips shall be exempt from taxation in the annual amount of up to EUR 3,360 per employee, while the tip amount exceeding the non-taxable part shall be taxed as final other income at a rate of 20 %.
• Donations for general purposes shall be deductible in an amount greater than 2 % of the previous year’s income.
• The tax treatment of employee share plans in limited liability companies (d.o.o.) shall be aligned with the employee stock plans in joint stock companies (d.d.) such that both shall be taxed as capital income at a rate of 20 % (without assessment of social contributions).
• The deadline for paying income tax according to the annual calculation is set to a specific date (i.e., February 28) instead of the date of filing the tax return.
• Amounts in euros shall be rounded in favor of taxpayers.

Corporate income tax

Changes that entered into force on 12 October 2023:

• The payment of withholding tax on tax and business consulting services as well as market research services has been abolished.
• Application of the exemption from withholding tax on interest and royalties paid to recipients in the European Economic Area (Norway, Iceland, Liechtenstein) has been aligned to the tax treatment of such payments to EU resident companies.
• The withholding tax rate has been increased from 20 % to 25 % for fees and services paid to persons resident in countries listed on the EU list of non-cooperative jurisdictions, with which the Republic of Croatia has not concluded a tax treaty.

Changes becoming effective on 1 January 2024 include

• The value of assets considered longterm assets is increased to EUR 650.
• Tax-deductible expenses relating to donations can exceed 2 % of the previous year’s income if they are for the purpose of financing of strategic projects.
• The deadline for paying corporate income tax has been set at April 30, regardless of the date of filing the corporate income tax return.
• Amounts in euros shall be rounded in favor of taxpayers.

Value added tax

• Simplification of the provisions on the correction of the tax base for bad debts applies for invoices issued after 1 January 2024. The correction of the tax base is possible within six months after the expiration of the period of one year from the due date of uncollected receivables, provided that the supplier has taken all actions to collect the due receivable.
• The threshold for entry in the register of VAT taxpayers is rounded up to EUR 40,000. In order to comply with EU Council Directive 2020/284, certain requirements for payment service providers shall be introduced.

Fiscalization

• The treatment of tips in the fiscalization system has been specified.
• The ability to check invoices via SMS has been abolished.
• The threshold for cash payment of an invoice for the purchase of goods and services to another taxpayer has been increased to EUR 700.
• Amounts in euros shall be rounded.

Local regulations

• By abolishing the city surtax, local self-government units have been allowed to set the level of tax rates for annual income (income from employment, self-employment and income classified as other income that is not considered final).
• The tax range for vacation homes is increased to EUR 0.60 per sqm to EUR 5 per sqm.
• The prescribed amounts of local taxes shall be rounded.

Social contribution act

The following changes to the Contribution Act will come into force on 1 December 2023

• The base for pension insurance shall reduce to a maximum of EUR 300 (pillar I). A fixed allowance of EUR 300 has been set for gross salaries up to EUR 700 and a gradual reduction of the allowance applies to salaries from EUR 700,01 to EUR 1,300.
• Income classified as “other income” based on tips shall be exempt.
• The due date of the contribution based on another activity shall apply from the day of filing the tax return to the last day of the deadline for filing the tax return.